National Bank won’t cut its base rate in Kazakhstan

According to Berik Sholpankulov, deputy head of the National Bank of Kazakhstan, the regulator needs the base rate at the current level because inflation risks are still there. Even though the price increase rate has been cooling down since spring 2022, it is still higher than annual rates on average, he said.

The official noted that the inflation in Kazakhstan continues to grow because of significant changes in global supply chains, high inflation expectations, fiscal incentives to boost demand and lending growth.

He also said that global markets expect the leading central banks to soften their monetary policy by the end of 2023 – despite their harsh rhetoric – due to slowing inflation.

«However, there is still a mix of different macroeconomic factors as the job market in developed countries is growing while business activity is quite slow,» he said.

Earlier in February 2023, Galymzhan Pirmatov, head of the National Bank said that the softening of the monetary policy doesn’t make sense in the current economic conditions.

According to Pirmatov, the softening of the monetary policy during high inflation can trigger the massive process of migration of both professional participants of the financial market and regular people from low-yielding assets nominated in the national currency of the tenge. In turn, this trend may cause a weakening of the tenge as expectations of the tenge devaluation would grow.

The official believes that reducing the base rate won’t make bank loans cheaper. Instead, high demand for loans and quite a small number of good borrowers would push banks to increase their risk premium.

The regulator has been strengthening the monetary policy since July 2021 to prevent inflation from further growth. The current base rate in Kazakhstan is 16.75%. On February 24, the National Bank is going to decide the base rate once again. It is likely the regulator to keep it as it is now.

In January 2023, Kazakhstan reported 20.7% of inflation on an annual basis. The sale rate last year was 20.3%.